Bianca Botes, Director at Citadel Global

In a week that has been circled on calendars for months, the world’s four most closely watched central banks met in the same seven-day window for the first time since December 2021. The United States (US) Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), and the European Central Bank (ECB) each faced its own domestic calculus – but all four reached the same conclusion: hold! The thread connecting every decision was oil. With Brent crude trading above $100/barrel for the second consecutive week, inflation outlooks have shifted materially and rate-setters across the G7 are now navigating a tension between energy-driven price pressure and the drag that elevated energy costs will impose on growth.

Federal Reserve

The Federal Open Market Committee wrapped up its two-day meeting on 18 March, voting to keep the federal funds rate unchanged in the 3.50% and 3.75% range. The decision was the second consecutive hold following three quarter-point cuts in 2025 and it surprised nobody. What the market was listening for was tone and Fed Chair, Jerome Powell, delivered something closer to a hawkish pause than a neutral one. Powell acknowledged that inflation assessments have become “highly uncertain” in the context of the Iran conflict and the resulting surge in energy costs – language that effectively pushes out the timing of the next cut. The updated dot plot still carries a pencilled-in reduction later this year, but the distribution of views on the committee has widened and the bar for action has clearly risen. Adding institutional texture to the meeting, it is one of Powell’s last, with his term as Fed Chair expiring on 15 May and Kevin Warsh waiting in the wings to take over. The prospect of a leadership transition and the possibility of a more dovish successor keeps risks to US policy alive heading into the second quarter.

Bank of Japan

The BoJ held its benchmark rate at 0.75% on Thursday, a move that was widely anticipated. The BoJ remains the outlier in the current global landscape – the only major central bank in a tightening mode, albeit a deliberate one. The base case heading into 2026 had Tokyo nudging rates toward 1.00% before year-end, supported by above-trend growth and inflation holding around 2%. That path is now less certain. Higher energy prices are a complicated input for Japan as they stoke import costs and dampen consumer spending but also support the reflationary narrative the BoJ has spent years building. The yen remains the immediate pressure point. The yen/dollar exchange rate has drifted back above ¥159/$ and intervention risk from the Ministry of Finance is rising again. Any surprise in BoJ communication at this stage – even a nuanced shift on the pace of normalisation – carries the potential to produce large moves in the yen.

Bank of England

Prior to the eruption of the US-Israel strikes on Iran in late February, a 25-basis point cut from the BoE at this meeting had been close to a consensus call. That expectation has been unwound. The United Kingdom’s (UK’s) Monetary Policy Committee (MPC) voted unanimously to hold rates at 3.75% on Thursday, citing the material increase in global energy triggered by the Middle East conflict. UK headline Consumer Price Index (CPI) inflation came in at 3.0% in January and the reopening of energy inflation risks have made further easing analytically difficult. UK unemployment has also risen to 5.2% – a 10-year high – and gross domestic product (GDP) growth is flat, which means the MPC is sitting with the exact stagflationary combination it hoped to avoid. The committee’s internal divisions remain: a five to four split in favour of a hold at the February meeting indicates the doves have not abandoned their case, but until there is greater clarity on the duration and inflationary impact of the conflict, the majority view is to wait. The market has pushed out rate cut expectations significantly and some analysts now predict that if energy prices remain elevated through mid-year, the next rate-cut move could be deferred to 2027.

European Central Bank

The ECB held its deposit rate at 2.00% on Thursday – the sixth consecutive meeting without a move. The European Union (EU) was already in what ECB President, Christine Lagarde, had described as “a good place” heading into this week: eurozone inflation was in scope, unemployment was low and the growth backdrop, while modest, was stable. The Iran conflict has complicated that picture. European natural gas prices surged approximately 25% to above €68/megawatt-hour (MWh) by mid-week – their highest level in more than three years – following Iranian missile strikes on regional energy infrastructure, including Qatar’s Ras Laffan liquid natural gas (LNG) complex, which supplies roughly one-fifth of global LNG. Updated ECB staff projections, released Thursday, revised the EU’s headline inflation forecast to 2.6% for 2026, up from below 2% in the December projections, before returning to target in 2027. Markets have moved to price in over two rate increases this year rather than cuts – a significant repricing from where expectations stood just weeks ago. The tone from Lagarde was noticeably more guarded than in February, rowing back explicitly on the “good place” language she had used as recently as the last meeting. The Swiss National Bank, also meeting Thursday, held its rate at 0.00% and signalled an increased willingness to intervene in foreign exchange markets to counter excessive Swiss franc appreciation driven by safe-haven demand.

Oil: The variable none of the banks can control

Three weeks into the conflict and the oil market is reflecting a disruption with no modern precedent. Brent crude spiked above $110/barrel mid-week after the US and Israel struck Iran’s South Pars gas field – a facility shared with Qatar that underpins roughly 20% of global LNG supply. By Thursday morning, Brent had extended to above $113/barrel, with today’s range running as high as $119/barrel. West Texas Intermediate (WTI) crude has been trading around $96/barrel, pushing the Brent-WTI spread to roughly $18 per barrel – an 11-year high – against a normal differential of $5 to $8. The divergence widens further in physical markets: Oman crude has traded near $153/barrel and Dubai around $136/barrel, reflecting the acute scarcity of exportable barrels in the region. Physical crude in Asia is also trading at a near $40 premium over its paper equivalent, a signal that actual barrels are far scarcer than futures suggest.

The International Energy Agency (IEA) has authorised the largest emergency reserve release in its 50-year history – 400 million barrels, with the US committing 172 million barrels from its Strategic Petroleum Reserve over 120 days. The release has not moved the market in any sustained way. Leading independent energy research and business intelligence company, Rystad Energy, estimates that a two-month conflict will keep Brent near the $110/barrel mark, while a four-month scenario could take Brent to $135/barrel by June.

Iran’s new supreme leader, Mojtaba Khamenei – the son of Ali Khamenei, who was killed by an Israeli strike in the opening days of the war – has publicly vowed to keep the Strait closed as a tool of economic pressure. Tanker attacks continued through the week, with six vessels struck in a two-day period. US President, Donald Trump, has discussed navy escorts through the Strait but the Pentagon has indicated operational readiness is weeks away. The US allowing Iranian tankers to transit the waterway and the Treasury issuing a temporary licence for sanctioned Russian oil purchases represent the two most visible diplomatic gestures thus far, but neither has materially altered the fundamental supply picture. The IEA’s own assessment is blunt: the single most important variable for a return to stable energy flows is a resumption of transit through the Strait of Hormuz. Until that happens, the inflationary overhang will keep every central bank’s next move in question.

ENDS